ETF Geared ETFs - Betashares GEAR and GGUS

Betashares have ETFs that have a gearing ration of 65% for investing in the ASX 200 (via GEAR) and S&P 500 (via GGUS).

It's an alternative to directly leveraging via a loan split or margin loan. This AFR article covers some of the issues: The value of one-click gearing

They magnify returns and losses as illustrated below:



This is how returns would have panned out if you took advantage of the dip from 15 January 2016.

ASX 200 - total return of 44%.



S & P 500 - total return of 55%.

 

And like magic it's all gone next GFC

 

Agreed. They come with considerable risk. Certainly require careful monitoring at a minimum.

Perhaps only a short-term play and conditional trades to manage the risk.

 

According to Commsec in the last financial year the ASX 200 was up 9.3% and the all ords accumulation index was up 13.1% with the 20 year average being 8.9%.

On this basis one can see the case for investing in index funds such as STW or VAS for the long term. If that is so then there is a certain logic in investing in Betashares GEAR as that magnifies both the capital and the income. Of course there may be short term downside but that is always a possibility, and the substantial income would keep rolling in while waiting for the inevitable recovery.

 

Last 12 months



Last 2 years

 

Why doesn't the second part of the graph for 2 years look like the one for 1 year? I realise the y-axis is a different scale, but for example the double difference in early sept and late oct in the 1-year are not the same for the 2 year at the same point in the scale.

 

Because there are only 25 plot points in each chart. So it can smooth out some of the bumps.

 

DYOR on geared ETFs. They are really trading instruments only imho.

 

Sorry, based on 12 month performance (arbitrary start and end dates) one can see the basis for investing in index funds for the long term? I do not disagree with your finding, though the rationale seems very curious indeed

 

These EFTs are also black boxes, you really do not know for sure how they work and as such it is not possible to really risk access.

Geared access to basic EFT such as STW, or many other direct shares, is just so easy using warrants. You know what you have bought, you know the leverage and the costs. Easy in and out with full liquidity. Some even have automatic stops, very handy for people like me who can't stand selling a loss.

I use Citi instalment mini warrants extensively in and out of my SMSF. Not long term holds, say 1-6 months, but have held STWJOP for over 12 months as part of synthetic covered call strategy I have mentioned in earlier posts.

I would avoid any long term geared share investments, costs are too high for the limited leverage. For me, shares are mostly for income not growth so leverage doesn't help with that.